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The United States has reimbursed Pakistan, a key ally in the global war on terror, about $5.56 billion in Coalition Support Funds (CSF) for its efforts to combat terrorism along its border with Afghanistan. The Department of Defense (Defense) provides CSF to 27 coalition partners for costs incurred in direct support of U.S. military operations. Pakistan is the largest recipient of CSF, receiving 81 percent of CSF reimbursements as of May 2008. This report focuses on (1) the extent to which Defense has consistently applied its guidance to validate the reimbursements claimed by Pakistan and (2) how the Office of the Defense Representative to Pakistan's (ODRP) role has changed over time. To address these objectives, GAO reviewed CSF oversight procedures, examined CSF documents, and interviewed Defense officials in Washington, D.C., U.S. Central Command in Florida, and Pakistan.

Defense Comptroller issued new guidance in 2003 to enhance CSF oversight. The guidance calls for, among other things, CSF reimbursement claims to contain quantifiable information that indicates the incremental nature of support (i.e., above and beyond normal operations), validation that the support or service was provided, and copies of invoices or documentation supporting how the costs were calculated. While Defense generally conducted macro-level analytical reviews called for in its guidance, such as determining whether the cost is less than that which would be incurred by the United States for the same service, for a large number of reimbursement claims Defense did not obtain detailed documentation to verify that claimed costs were valid, actually incurred, or correctly calculated. GAO found that Defense did not consistently apply its existing CSF oversight guidance. For example, as of May 2008, Defense paid over $2 billion in Pakistani reimbursement claims for military activities covering January 2004 through June 2007 without obtaining sufficient information that would enable a third party to recalculate these costs. Furthermore, Defense may have reimbursed costs that (1) were not incremental, (2) were not based on actual activity, or (3) were potentially duplicative. GAO also found that additional oversight controls were needed. For example, there is no guidance for Defense to verify currency conversion rates used by Pakistan, which if performed would enhance Defense's ability to monitor for potential overbillings. Defense's guidance does not specifically task ODRP with attempting to verify Pakistani military support and expenses, despite recognition by Defense officials that such verification is best performed by U.S. officials in Pakistan, who have access to Pakistani officials and information. As such, ODRP did not try to verify Pakistan CSF claims from January 2004 through August 2006. Beginning in September 2006, without any formal guidance or directive to do so from U.S. Central Command or the Defense Comptroller, ODRP began an effort to validate Pakistani military support and expenses. This increased verification effort on the part of ODRP contributed to an increase in the amount of Pakistani government CSF claims disallowed and deferred. Prior to ODRP's increased verification efforts, the average percentage of Pakistani claims disallowed or deferred for January 2004 through August 2006 was a little over 2 percent. In comparison, the average percentage of Pakistani claims disallowed or deferred for September 2006 through February 2007 was 6 percent and for the most recent claims (March 2007 through June 2007) processed in February 2008, was approximately 22 percent. However, ODRP's continued oversight activity is not assured, as Defense had not developed formal guidance delineating how and to what degree ODRP should attempt to verify Pakistani claims for reimbursement. GAO recognizes that Defense may not be able to fully verify every Pakistani claim without the ability to access Pakistani records or do onsite monitoring. However, such ability would enhance CSF oversight.

Recommendations for Executive Action

Status: Closed - Implemented

Comments: Defense, in commenting on the report, concurred with the recommendation, and indicated that they had updated their Coalition Support Fund guidance to incorporate this recommendation. On June 19, 2008, Defense released its updated Guidance on the Use of CSF, which stipulated that cost comparisons should be conducted to identify and address cost fluctuations in Coalition Support Fund reimbursement claims.

Recommendation: To improve the impact and oversight of CSF payments to Pakistan, the Secretary of Defense should clarify guidance for Comptroller analysis of cost fluctuations.

Agency Affected: Department of Defense

Status: Closed - Implemented

Comments: Defense concurred with this recommendation, and on June 19, 2008, released its updated Guidance on the Use of Coalition Support Funds. To implement this guidance in the case of Pakistan, Defense staff from the Comptroller and U.S. Central Command (CENTCOM) visited Islamabad to conduct discussions on the administration and processing of CSF reimbursement claims with ODRP and Pakistan military representatives. The U.S. delegation spent several days in August 2008 discussing changes to the CSF claims approval process with Pakistan military officials, including a joint examination of Pakistan's claim for May 2008. As a result of these discussions, Defense agreed to: (1) provide Pakistan a set of revised guidelines on CSF administrative procedures; (2) provide Pakistan a revised format for the submission of Pakistan's June 2008 claim and all future CSF claims; and (3) return to Pakistan every 6 months beginning in February 2009 to discuss new CSF issues, provide training on CSF administrative processing requirements and revisit unresolved issues. Pakistani officials agreed to: (1) provide additional documentation and cost methodology information for the May 2008 claim; (2) provide a monthly operational summary of Pakistan army, air force, and navy actions in support of U.S. military operations; (3) provide feedback on the proposed submission format within 30 days of receipt; and (4) beginning with the May 2008 claim, provide additional information or documentation for all disputed claims within 90 days to substantiate claims deferred or disallowed by ODRP, CENTCOM or Defense Comptroller.

Recommendation: To improve the impact and oversight of CSF payments to Pakistan, the Secretary of Defense should work with the government of Pakistan to develop procedures to allow ODRP or other U.S. representatives to conduct greater oversight of CSF use in Pakistan, including the potential use of onsite inspections.

Agency Affected: Department of Defense

Status: Closed - Implemented

Comments: Defense, in commenting on the report, concurred with the recommendation, and indicated that they had updated their Coalition Support Fund guidance to incorporate this recommendation. On June 19, 2008, Defense released its updated Guidance on the Use of Coalition Support Funds, which defined and formalized the roles and responsibilities of ODRP and others involved with the U.S. embassy endorsement and verification process.

Recommendation: To improve the impact and oversight of CSF payments to Pakistan, the Secretary of Defense should define and formalize the roles and responsibilities of ODRP.

Agency Affected: Department of Defense

Status: Closed - Implemented

Comments: To improve the impact and oversight of CSF payments to Pakistan, we recommended that the Department of Defense consistently implement existing criteria to disallow or defer Pakistani claims that do not include the documentation needed to verify the claims. Defense concurred with our recommendations, and in response, issued revised CSF guidance for requesting and processing CSF claims on June 19, 2008. Defense has since implemented this guidance, resulting in the current system for processing Pakistan CSF cost claims. We have determined that, as of June 2010, the application of this guidance has resulted in Defense's disallowal of over $670 million in Pakistani costs that it determined did not meet its criteria for reimbursement. While we expect that additional cost savings will occur on future Pakistani claims for reimbursement, these will be dependent on the nature of the claims submitted.

Recommendation: To improve the impact and oversight of CSF payments to Pakistan, the Secretary of Defense should consistently implement existing criteria to disallow or defer Pakistani claims that do not include the documentation needed to verify the claims.

Agency Affected: Department of Defense

Status: Closed - Implemented

Comments: Defense, in commenting on the report, concurred with the recommendation, and indicated that they had updated their Coalition Support Fund guidance to incorporate this recommendation. On June 19, 2008, Defense released its updated Guidance on the Use of Coalition Support Funds, which stipulated that Defense must verify the currency exchange rate used, and the date and source of the exchange rate.

Recommendation: To improve the impact and oversight of CSF payments to Pakistan, the Secretary of Defense should develop and apply criteria to evaluate currency exchange rates to ensure that the U.S. government is not overpaying for Pakistan operations.